We believe that you may choose whether to disclose a property tax credit on the LE if the credit is for taxes that will be due before the first scheduled loan payment or within sixty days after the closing date. However, if the credit is for taxes that will not be due until more than sixty days after closing, we believe the tax credit should be left off of the LE.
If you have a copy of the purchase agreement and you know that the seller is going to provide a credit for property taxes that are due before the borrower makes the first scheduled payment or within sixty days after the closing, you can disclose the taxes as a prepaid borrower expense in Section F of the LE, with the seller credit expressed as a negative number under “Seller Credits” in Section J. Note that you are not required to disclose the property tax credit on the LE. As with other seller credits, we believe a credit for property taxes may be left off of the LE entirely.
However, if the borrower will be responsible for a tax bill that is not due until more than sixty days after the closing date, we believe you must leave the seller credit off of the LE (for the portion of the tax period during which the seller owned the property). Seller credits are disclosed on the LE only in relation to costs that must be disclosed to the borrower on the LE — and property taxes that are not due in advance of the first scheduled loan payment or within sixty days after closing are not required to be disclosed to the borrower on the LE as “prepaid” property taxes.
For resources related to our guidance, please see:
- Regulation Z, 12 CFR 1026.37(g)(2)(iv), Loan Estimate (“Prepaids. Under the subheading ‘Prepaids,’ an itemization of the amounts to be paid by the consumer in advance of the first scheduled payment, and the subtotal of all such amounts, as follows: . . . (iv) On the fourth line, the number of months for which property taxes are to be paid by the consumer at consummation and the total dollar amount to be paid by the consumer at consummation for such taxes, labeled ‘Property Taxes ( __ months).’”)
- Regulation Z, Official Interpretations, Paragraph 37(g)(2), Comment 1 (“. . . . Examples of periodic charges that are disclosed pursuant to § 1026.37(g)(2) include: i. Real estate property taxes due within 60 days after consummation of the transaction
- Regulation Z, 12 CFR 1026.37(h)(1)(vi), Loan Estimate (“For all transactions. Under the master heading ‘Closing Cost Details,’ under the heading ‘Calculating Cash to Close,’ the total amount of cash or other funds that must be provided by the consumer at consummation, with an itemization of that amount into the following component amounts: . . . (vi) Seller credits. The total amount that the seller will pay for total loan costs as determined by paragraph (f)(4) of this section and total other costs as determined by paragraph (g)(5) of this section, to the extent known, disclosed as a negative number, labeled ‘Seller Credits’; . . .”)
- Regulation Z, Official Interpretations, Paragraph 37(h)(1)(vi), Comment 2 (“Seller credits for specific charges. To the extent known by the creditor at the time of delivery of the Loan Estimate, specific seller credits, i.e., seller credits for specific items disclosed under § 1026.37(f) and (g), may be either disclosed under § 1026.37(h)(1)(vi) or reflected in the amounts disclosed for those specific items under § 1026.37(f) and (g). For example, if the creditor knows at the time of the delivery of the Loan Estimate that the seller has agreed to pay half of a $100 required pest inspection fee, the creditor may either disclose the required pest inspection fee as $100 under § 1026.37(f) with a $50 seller credit disclosed under § 1026.37(h)(1)(vi) or disclose the required pest inspection fee as $50 under § 1026.37(f), reflecting the specific seller credit in the amount disclosed for the pest inspection fee. If the creditor knows at the time of the delivery of the Loan Estimate that the seller has agreed to pay the entire $100 pest inspection fee, the creditor may either disclose the required pest inspection fee as $100 under § 1026.37(f) with a $100 seller credit disclosed under § 1026.37(h)(1)(vi) or disclose nothing under § 1026.37(f), reflecting that the specific seller credit will cover the entire pest inspection fee.”)